India announces revised gas pricing regime
The Indian government on April 6 revised the pricing guidelines for locally produced gas. The government's decision is based on the recommendations of an expert panel chaired by economist Kirit Parikh, which submitted its report in November last year.
As per the new formula, the price of the gas produced domestically will be 10% of the monthly average of the Indian crude basket and notified on a monthly basis. The gas price will, however, have a floor of $4/mn Btu and a cap of $6.5/mn Btu. The ceiling price of $6.5/mn Btu is lower than the current administered price of $8.57/mn Btu.
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Gas produced from new wells of state-owned explorers ONGC and Oil India would be allowed a premium of 20% over the administered price, the government said in a statement.
“The new guidelines are intended to ensure a stable pricing regime for domestic gas consumers while at the same time providing adequate protection to producers from adverse market fluctuation with incentives for enhancing production,” the government added.
India is aiming to increase the share of natural gas in the primary energy mix from 6.5% to 15% by 2030. The government said that the new price regime would help expand the consumption of natural gas and contribute to achieving the target of emission reduction and net zero.
The new formula is expected to reduce piped natural gas (PNG) for households and compressed natural gas (CNG) for transport. The reduced prices shall also lower the fertilizer subsidy burden and help the domestic power sector, the government said.
At present, domestic gas prices are determined as per the new domestic gas pricing guidelines, which were approved by the government in 2014. The 2014 pricing guidelines provided for declaration for domestic gas prices for a six-month period based on the volume-weighted prices prevailing at four gas trading hubs - Henry Hub, Albena, National Balancing Point (UK), and Russia for a period of 12 months and a time lag of a quarter.
“As the earlier guidelines based on four gas hubs had a significant time lag and very high volatility, the need for this rationalisation and reform was felt,” the government said. “The revised guidelines make prices linked to crude, which is a practice now followed in most industry contracts, is more relevant to our consumption basket and has deeper liquidity in global trading markets, on a real-time basis.”
With the changes now approved, data on Indian crude basket price from the previous month would form the basis for administered gas price determination.